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If Apple Wants To Stay Levered To The iPhone – Here’s An Idea

AAPL Revenues by Product, FY 15 Q3 (April – June)

Apple generated 63% of its revenue from the iPhone in the latest quarter followed by the Mac at 12%. Services came in 3rd at 10%, while the iPad represented 9% of revenue and Other Products took 5%. Services include iTunes, AppleCare, and Apple Pay. Other Products include Apple TV, Apple Watch, Beats Electronics, iPod and Apple-branded third-party accessories.

iPhone sales have been the major catalyst behind AAPL’s massive valuation. It’s no coincidence that revenues and market cap began to skyrocket in 2007 – the year the first-generation iPhone was revealed. Absent another silver bullet, which the company clearly lacks despite a slew of impressive products, AAPL’s valuation is due for another decline.

Services, Other Products Simply Aren’t a Factor

It would be easy to tout Apple Inc. (NASDAQ:AAPL)’s “services” and “other products” (see chart) as catalysts for future growth, but any serious investor knows that AAPL stock is synonymous with the iPhone. And while there’s a lot to love about Apple Pay and Apple TV, these products and services simply won’t give the iPhone maker the legs it needs to reach that trillion dollar valuation that looked like a given almost one year ago.

Apple Watch? Aside from being lumped in with “other products” in the quarterly report, the wearable gadget didn’t live up to its buzz. According to Google Trends, the Apple Watch is the least searched AAPL product. Yes, even less than the decade-old iPod.

Combined – iTunes, AppleCare, Apple Pay, Apple TV, Apple Watch, Beats Electronics, iPod and Apple-branded third-party accessories accounted for just 15% of Q3 revenues. That means AAPL is in no position to diversify its revenues away from the iPhone. In fact, the complete opposite is true. The iPhone has actually seen its share of total revenues rise over the years. That means the iPhone’s influence on AAPL’s valuation has actually increased, not decreased. Simply recall that iPhone sales accounted for around 40% of AAPL revenues in FY 2011, compared with nearly 70% in 2015 Q1 and 63% in the most recent quarter. When you’ve reached the pinnacle on the back of one product and one product only, the only way left is down.

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